Swift today announced the findings of the second phase of industry-wide sandbox testing on its central bank digital currency (CBDC) interlinking solution, with the results showing that its connector can enable financial institutions to carry out a wide range of financial transactions using CBDCs and other forms of digital tokens, easily incorporating them into their business practices.
In one of the largest known collaborations on CBDCs, 38 institutions – including central and commercial banks as well as market infrastructures – took part in experiments which found that Swift’s solution has the potential to simplify and speed up trade flows, unlock growth in tokenised securities markets, and enable efficient FX settlement – all while allowing financial institutions to continue to make use of their existing infrastructure.
Interoperability is critical to Swift’s strategy for instant and frictionless transactions. The cooperative has focused its innovation agenda on interoperability between digital currencies and tokenised assets to overcome the potential risk of fragmentation, caused by the development of digital currencies on different technologies and with different standards and protocols. Swift’s solution has already been shown to enable cross-border transfers and connect CBDCs on different networks with each other, as well as with fiat currencies.
The second phase of sandbox testing went further, exploring more complex use cases, using Swift’s solution to connect and orchestrate transactions across simulated digital trade and tokenised asset and FX networks, alongside CBDCs for payments. More than 750 transactions were carried out over the course of the experiments.
In digital trade, the collaborative experiments successfully demonstrated interoperability between different digital networks and trade platforms, with Swift’s solution facilitating atomic trade payments – payments that are completed simultaneously, alongside the transfer of assets, rather than sequentially. Smart contracts and event-driven programming enabled the automation of payments only once certain conditions had been met, meaning trade flows could potentially become automated 24 hours a day, seven days a week. Participants also highlighted the solution’s potential to reduce delays in global trade, enhance trust among parties, and significantly lower transaction costs.
In securities, the lack of interoperability between tokenisation platforms is a barrier to the growth of tokenisation. The experiments showed that Swift’s solution was able to interlink multiple asset and cash networks and could facilitate atomic delivery versus payment across those platforms. Tokenisation is a new market which is attracting widespread industry interest due to its potential to improve liquidity, lower transaction costs, and enhance transparency and security.
Finally, the experiments showed that the connector could play a role in foreign exchange. Working closely with CLS, the connector was shown to be interoperable with the existing market infrastructure, facilitating FX netting and settlement via CBDCs.
Tom Zschach, Chief Innovation Officer at Swift, said: “Swift is a community – a convener of and for our industry – and I’m delighted that we’ve been able to facilitate these critical innovation experiments and show that institutions can continue to use much of their existing infrastructure alongside new, innovative technologies. Fragmentation is a challenge for the entire industry, and ensuring interoperability between networks is vital to addressing this while also enabling new technologies to scale and reach their full potential.”
The full results report is available here. Swift now plans to extend its solution to support a wider range of emerging digital networks in addition to CBDCs, such as platforms for tokenised deposits.
Participants in the sandbox came from around the world and across the industry, including central banks and monetary authorities from Australia, Czechia, France, Germany, Singapore, Taiwan and Thailand, among others. Commercial bank and market infrastructure participants included ANZ; Citibank; CLS Group; DBS; Deutsche Bank; DTCC; HSBC; Hua Nan Commercial Bank; Intesa Sanpaolo; NatWest Group; Santander; Société Générale; Standard Chartered; Sumitomo Mitsui Banking Corporation; The Shanghai Commercial & Savings Bank, Ltd; The Standard Bank of South Africa; United Overseas Bank; and Westpac Banking Corporation.
Sabib Behzad, Head of Digital Assets & Currencies Transformation at Deutsche Bank, said: “Interoperability between DLT networks is an important piece of the puzzle to enable efficient connectivity between CBDC and other networks and to avoid silos. Testing Swift’s solution for different use cases such as DvP and FX with 38 commercial and central banks is a significant step to overcoming fragmentation and ensuring frictionless transactions.”
Lewis Sun, Global Head of Domestic and Emerging Payments, Global Payments Solutions at HSBC, said: “The ability to interlink emerging and existing market infrastructures is essential to realizing the potential benefits brought on by tokenization and CBDCs. HSBC is excited to continue the collaboration with Swift and other industry peers to incubate an open, inclusive and technology-agnostic model that allows for more efficient payment-versus-payment, delivery-versus-payment, and trade settlement across different networks.”
Stefano Favale, Global Head of Global Transaction Banking at Intesa Sanpaolo, said: “The Swift connector will help interlinking different technologies behind CBDCs and digital asset platforms, reducing the risk of fragmentation and preparing the innovative market to grow.”
Carmen Rey, Head of Swift and CIB Payments at Santander, said: “This initiative solves the need to ensure interoperability in the future CBDC ecosystem by leveraging on existing connections. This will help to facilitate access and usage of CBDCs in the new complex world of digital payments. It also resolves the need to have some standardization and common rules which is another key success factor to expand the use of CBDCs.”
Dirk Bullmann, Global Head of Public Policy at CLS, said: “Our collaboration with Swift and other key industry players demonstrates our commitment to exploring innovative technologies that reduce risk and increase efficiency while also meeting high standards of resilience. As the leading provider of FX settlement services, CLS’s participation in the Swift sandbox allowed us to jointly gain a better understanding of how netting and settlement of cross-currency payments could be designed in a CBDC world.”
About the experiments:
The six-month experiment was divided into two streams of work – a series of working group sessions and hands-on exploration in a sandbox environment. Swift ran 20 working group sessions with an average of 60 participants in each session. The sandbox infrastructure was provisioned for 38 organisations for a period of four months. 125 users were onboarded from across these organisations for testing purposes in the sandbox.
Participants met regularly to discuss use cases and potential solutions in dedicated working group sessions, which were divided into business and technical sessions for each use case. These sessions were attended by representatives from all institutions across different departments. During the sessions, participants reviewed key design decisions, roles and responsibilities, and implementation considerations for each of the use cases. They also reviewed the key elements of the interlinking solution, the Swift connector. Once a use case had been locked in with an approved design, the Swift team implemented the solution in the sandbox for the participants to test, validate and provide feedback for future consideration.
The working groups included a diverse range of institutions from across the globe, representing a variety of policies, regulatory frameworks, AML standards and counter-terrorism requirements. They also included a strong mix of central banks, commercial and regional banks, and market infrastructures.
The working groups played a critical role in exploring and discussing the implementation of potential solutions in a collaborative manner, while also taking into considerations the differences between participants, while the show-and-tell approach with the hands-on testing in the sandbox provided realism to the solution. During testing, 750+ transactions were completed in the sandbox environment across use cases.
About Swift
Swift is a global member owned cooperative and the world’s leading provider of secure financial messaging services. We provide our community with a platform for messaging and standards for communicating, and we offer products and services to facilitate access and integration, identification, analysis and regulatory compliance.
Our messaging platform, products and services connect more than 11,500 banking and securities organisations, market infrastructures and corporate customers in more than 200 countries and territories. While Swift does not hold funds or manage accounts on behalf of customers, we enable our global community of users to communicate securely, exchanging standardised financial messages in a reliable way, thereby supporting global and local financial flows, as well as trade and commerce all around the world.
As their trusted provider, we relentlessly pursue operational excellence; we support our community in addressing cyber threats; and we continually seek ways to lower costs, reduce risks and eliminate operational inefficiencies. Our products and services support our community’s access and integration, business intelligence, reference data and financial crime compliance needs. Swift also brings the financial community together – at global, regional and local levels – to shape market practice, define standards and debate issues of mutual interest or concern.
Headquartered in Belgium, Swift’s international governance and oversight reinforces the globally inclusive character of its cooperative structure. Swift’s global office network ensures an active presence in all the major financial centres.
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